Topic 3 - Consideration (Red Line).pdf

Topic 3 – Consideration The concept of ‘consideration’ is the principal way in which English courts decide whether an agreement that has resulted from the exchange of offer and acceptance (as explained in Topic 2) should be legally enforceable. It is only where there is an element of mutuality about the exchange, with something being given by each side, that a promise to perform will be enforced. A promise to make a gift will not generally be treated as legally binding. It is the presence of consideration which makes this promise binding as a contract. It is possible to see consideration as an important indication that the parties intended their agreement to be legally binding as a contract. Although there is a separate requirement of an intention to create legal relations (discussed in Topic 4), it is clear that historically this requirement was also fulfilled by the requirement of consideration. While the doctrine of consideration is crucial to English contract law, it has been applied with some flexibility in recent years. At common law a promise is only enforceable if supported by consideration. A B A promises to paint B’s garden fence. The promise to do this is consideration moving from A to B. For this to form the basis of a binding agreement there must be a promise from B, perhaps to pay A for the work, for this to be a binding agreement. There is then consideration moving from B to A. In some circumstances, English courts will find that a promise given without consideration is legally binding and this topic concludes with an examination of these instances. These instances are decided upon on the basis of the doctrine of ‘promissory estoppel’ and in this area the courts are concerned to protect the reasonable reliance of the party who has relied upon the promise. These instances arise where there is a variation of existing legal obligations. (Mini Lecture 1) It is our ﬁrst lecture on the basic requirement for a contract that there be considera on, to understand the concept of considera on and more par cularly, a dis nc on between present and past considera on. There are three basic building blocks, which we describe as the requirements for a contract. For a contract to be made, there has to be three things. There has to be an agreement, by which we meant corresponding oﬀer and acceptance. There has to be considera on, and there has to be an inten on to create legal rela ons. The formal deﬁni on of considera on taken from Currie v Misa here is quite a long one. It says, "A valuable considera on in the sense of the law may consist either in some right interest, proﬁt or beneﬁt accruing to one party or some forbearance detriment loss or responsibility given, suﬀered or undertaken by the other." If we try to strip that down to its basics, considera on consists of either a beneﬁt to one party or a detriment to the other. A beneﬁt means an improvement in your condi on, a detriment meaning a worsening of your condi on. Considera on is a beneﬁt to one party or a detriment to the other. Now, in most transac ons, both beneﬁt and detriment will be present on both sides of the transac on. If you agree to buy my car from me for a sum of money, my promise to supply the car is both a detriment to me and a beneﬁt to you. Your promise to pay a sum of money is both a detriment to you and a beneﬁt to me. In most cases, beneﬁt and detriment will be present on both sides, but that deﬁni on has or in it. Either beneﬁt or detriment will alone be suﬃcient. In a slightly diﬀerent case, it might be that I agree to sell you my car, but you say the price will be paid by your father. In that case, the considera on I supply is the same as in the ﬁrst example. I am promising to supply my car, which is both a detriment to me, a worsening of my posi on, I'm giving away my car and a beneﬁt to you, you're receiving it. If we look at the considera on moving the other way, what is being given in exchange for my promise to supply my car, you are undertaking that your father will pay the price. That, the considera on you supply, is not obviously a detriment to you. If you were paying, it's a detriment to you because your bank account diminishes by the amount of money you're giving to me. There's no worsening of your posi on when your father is paying. But from my perspec ve, the receipt of a sum of money from your father is as much a beneﬁt to me as if it had come direct from you. The payment by a third party is an example where beneﬁt and detriment are separated. Where the payment by the third party is a beneﬁt to me, but not a detriment to you. It is s ll good considera on because of that word 'or' because we know that considera on can be established by either a beneﬁt to one party or a detriment to the other. There's a couple of maters that arise from this. One, I've emphasized already that considera on is about reciprocity. It's about par es, each giving something to the other. Second point is about value, because considera on can have any, but must have some economic value. In a case called Thomas v Thomas, an agreement where property could be let for a pound a period is ﬁne. In another case involving a minimal payment, in Chappell v Nestle, there was a promo on by Nestle where they undertook to give something in exchange for and a certain number of chocolate wrappers being supplied. Now, a ques on arose indirectly whether that was a contract of sale. It was held it was, and implicit in that, is the ﬁnding that the giving of the chocolate wrappers to Nestle was good considera on by the customer. These wrappers don't seem to have an obvious economic value, but they do to Nestle because there were evidence of sales and an encouragement to sales. They didn't have an intrinsic value in that the paper wasn't worth anything, but the fact that they were evidence of sales was worth something. From those two cases, we can see that because we say considera on must have some economic value, but it doesn't mater how much, a sale at undervalue is as enforceable from the perspec ve of considera on as any other and equally, a sale at overvalue would be as enforceable from the perspec ve of the doctrine of considera on as any other. If I have a car which has a market value of, let's say, £15,000, if I contract to sell you that car for £1, that is as enforceable as if I contract to sell it to you for £50,000. From the perspec ve of considera on, a sale at undervalue is as enforceable as a sale at overvalue. That is some mes encapsulated by the phrase that the law does not enquire into the adequacy of considera on. We have a general rule in rela on to what we call past considera on. The rule is that a promise to reward another for acts they performed in the past is not usually enforceable. My garden is very un dy. Let's suppose that my neighbor is so fed up of seeing my un dy garden that she comes round unknown to me and mows the lawn. When I come back from work in the evening, I see that this has been done. I go around to see her and say, "Thank you very much for mowing my lawn. I'm very happy to pay you £20 for doing so." There is no good considera on to support my promise to pay her £20 because the act in respect of which the promise was made was in the past. In Roscorla v Thomas, an agreement to sell a horse was entered, but later, after the agreement to sell the horse had been entered, there was an assurance that the horse was sound, given by the seller. There was no good consideration to support the assurance that the horse was sound because the contract had already been concluded. As you will now be very familiar with, for every rule that you meet, we will inevitably ﬁnd an excep on. The excep on here has two parts. If these two requirements are sa sﬁed, then although the act or promise was past, there will be good considera on. The ﬁrst requirement is that the act in the past was done at the promisor's request. In a wonderful old case called Lampleigh v Braithwaite, a man had been condemned to be executed. He implored his friend to ride to Royston to beg the king's pardon, to get a pardon from this sentence. The friend did so, got a pardon and then the very ungrateful man who was pardoned said to his friend, “I will pay you a £100 for what you have done”. He was ungrateful because when it came to paying the money, he declined to do so and it looks like the promise to pay the sum of a £100 was made after the act. It was said that where the past act was done at the promisor's request and of course, why did the friend ride to Royston to beg the king's pardon? Because he was asked to do so. So because the act was done in the past, at the request of the other party, then that could be good consideration. A second requirement was subsequently added, which was that the past act must have been done in the reasonable expecta on that it would be paid for. It was a later case called Re Casey's Patents that added this second requirement. What happened was that an employee had worked on Page 3 of 3 certain patents while employed at a ﬁrm and was later told that because the work on the patents had been so good, they would be given a one third share of those patents. The employer declined to give the one third share and said, "Oh, my promise to give that share was not supported by consideration because the act to which it related, the employee working on these patents, was in the past." Well, it was said that the promise to give the one third was binding because it fell within this consideration because the act of working these patents was done at the request of the employer, so sa sfying the Lampleigh v Braithwaite ﬁrst requirement, but it was also done in the expectation that it would be paid for. All employees perform their task in the expectation that they will be paid. The two requirements were satisﬁed. The employer was obliged to pay. (Mini Lecture 2) We are looking to understand whether the promise to perform or the act of performing a pre-exis ng legal duty can be good considera on. We compose this as a ques on. Can the promise or performance of a pre-exis ng duty cons tute good considera on? The answer to this ques on depends, or if you like varies dependent upon the source of the pre-exis ng duty. The answer is diﬀerent depending upon where that pre-exis ng duty comes from. There were three sources of the pre-exis ng duty that could be relevant. The ﬁrst is where the pre-exis ng duty derives from the law generally, the second when that pre-exis ng duty derives from a contract with a third party, and the ﬁnal example is where the pre-exis ng duty derives from a contract with someone I've described as the subsequent promisor with someone who makes a later promise. In the abstract, they are quite diﬃcult things to envisage, but as always, they're much easier to understand when we look at them through the cases. Let's look at the pre-exis ng duty deriving from the law generally. In Glasbrook v Glamorgan brothers, there was a minor strike. The contract in question was a contract between the owner of a mine and the local police force where the mine owner agreed to pay a sum of money for a small force of police oﬃcers to be stationed at the mine. Because there was a strike ongoing and some violence associated with it, the mine owner was fearful that the mine might be attacked by the strikers or the working miners intimidated. It was said in that case that the promise to perform or the performance of a pre-existing duty deriving from the law generally will not be good consideration because when the police asked for the extra money promised them by the mine owner, the mine owner replied, "You were only doing what you were legally obliged to do. You are the police. You have a duty to protect property and people. You are only promising me that you will do your pre-existing legal duty." That does not amount to good consideration. The court said it is correct to say that where the pre-existing duty derives from the law, generally it will not amount to good consideration. However, the police here were doing something in excess of their pre-existing duty. They were indeed under an obligation to protect property and people from threats and violence, but that duty would've been satisﬁed by having a smaller force, a mobile force ready to go to the mine if there's any trouble. The chief constable agreed to do more than that. He had a larger force and he stationed it at the mine. Because something was being done in excess of the pre-existing legal duty, there was good consideration for the mine owner's promise to pay for that service. We sometimes call this approach an approach that says you have to do something in excess of your pre-existing legal duty. We sometimes call that a legal deﬁnition of consideration. Second scenario is where the pre-exis ng duty derives from a contract with a third party. This scenario involves three par es and it arose in a slightly complicated set of facts in a case called the Eurymedon, New Zealand Shipping Company and A. M. Saterthwaite is the full name, but like many shipping cases, it's known by the abbreviated name of the vessel, the ship involved. The three parties here were the owners of a cargo who employed a shipping company to ship their goods. That shipping company then employed people called stevedores, that is those responsible for unloading the ship. The question that arose on how consideration was relevant was the cargo owners made a promise that they would not hold the shipping company or anyone employed by them liable for damage to the goods. In exchange for that, when the goods were damaged by the stevedores, the stevedores said, "We are protected by this promise." The cargo owner said, "You gave no good consideration for my promise to hold you not liable for damage to the goods, because all you did was to promise to unload the goods. That was something you were already obliged to do by your contract with the shipping company that employed you." The Privy Council said, "Yes, that is true, but in this scenario, the performance and no more the mere performance of the pre-existing contractual duty when it is owed to a third party will amount to good consideration." They said that good consideration was provided by the stevedores when they promised to perform the act of unloading the goods, even though that was only something they were already obliged to do by the contract they had with the shipping company. In these three-party situa ons, it's diﬀerent to the previous situa on because here the mere performance of a pre-exis ng duty can amount to good considera on when that pre-exis ng duty derives from a contract with a third party. When we previously saw that the performance of a pre-exis ng duty did not amount to good considera on when the pre-exis ng duty derived from the law generally. The ﬁnal scenario is where the pre-exis ng duty derives from a contract with a subsequent promisor. Whereas the previous example was a three-party situa on, this is a two-party situa on. In the old case, in S lk v Myrick, a ship's captain had a contract with crew members to work the ship from the UK and back to the UK. At an intermediate port, a number of the ships crew deserted. In order to induce the remaining men to stay, the captain said, "I will pay you extra if you remain with the ship and work at home." In fact, what he said was, "I will divide the wages of the men who've deserted between you if you stay and work the ship home." The men did, and the captain then refused to pay the extra. The rule that was applied in this case was the rule that was applied in the ﬁrst scenario we came across. It was said, the men were only doing what they were already contractually obliged to do, so they provided no good consideration for the captain's promise to pay extra, so they could not recover the extra. This old rule was changed in a later case called Williams v Roﬀey Bros. This is a very signiﬁcant case and I recommend you read this case. In Williams v Roﬀey Bros, a main contractor was refurbishing ﬂats and employ a subcontractor. The subcontractor, employed a joiner to help with the refurbishment. The joiner had contracted for too low amount an amount. He was never going to be able to complete it at that payment. The main contractor realized this, and the main contractor oﬀered the carpenter, a joiner, extra money for each ﬂat that he completed, joined the completed the ﬂats, some of them, and then asked for the extra money, the main contractor refused to pay. Now, if we had applied the rule in Stilk v Myrick, then the main contractor would fail, so the subcontractor to joiner would fail. The reason for that is that all he was promising in exchange for the promise of extra money was what he was already obliged to do. S lk v Myrick had been applied, the joiner would fail but the joiner, a subcontractor, did recover the extra money promised. A new rule was applied to this situa on. What the Court of Appeal said, I was lucky enough to actually be in the Court of Appeal when this decision was made. I took my students from University Page 3 of 3 College London, where I taught at the me, down there to hear the case. The rule was changed and it was said that performance of the pre-exis ng duty will now amount to good considera on when as a mater of fact, it confers a prac cal beneﬁt on the other party. Where you only perform what you were already obliged to do under a contract with that party, it will amount to good considera on if it confers a prac cal beneﬁt on the other part. What prac cal beneﬁt was received by the main contractor from the subcontractor merely performing his pre-exis ng duty. Well, in the ﬁrst contract between the owner of the property and the main contractor, there was a penalty clause, that is a clause whereby if the renovation was not completed on time, the main contractor would have to pay a penalty to the property owner. The beneﬁt, which the main contractor received, from the mere performance by the subcontractor of his preexisting duty is that it helped the main contractor because he avoided having to pay out under the penalty clause which he will be subject to if he didn't complete on time. This approach to considera on is some mes called a factual deﬁni on of considera on because the emphasis here is upon the fact that there has been a prac cal beneﬁt to the other party. Now, these cases are two-party situa ons. In S lk v Myrick, there were only two par es, captain and the crew, in Williams v Roﬀey Bros there were three par es technically, but we were concentra ng upon the contract only between two of them, between the main contractor and the subcontractor. These are cases where all par es are seeking to modify their contract. What we're asking is whether an atempt to modify the contract in S lk v Myrick, between the captain and the crew. In Williams v Roﬀey Bros, between the main contractor and subcontractor were that atempt to modify that contract is enforceable or not. Now, Williams v Roﬀey is one of the most important cases on considera on in modern mes, so there's some extra reading there. In addi on to reading the case, I want you to read those sec ons in Mckendrick that deal with pre-exis ng du es and in par cular, the Williams v Roﬀey Bros 3.1 Consideration Consideration has been called the ‘badge of enforceability’ in agreements. This is particularly important where the agreement involves a promise to act in a particular way in the future. In exchanges where there is an immediate, simultaneous transfer of, for example, goods for money (as in most everyday shop purchases), the doctrine of consideration applies in theory but rarely causes any practical problems. This immediate exchange is sometimes referred to as executed consideration. However, if somebody says, for example, ‘I will deliver these goods next Thursday’ or ‘I will pay you £1,000 on 1 January’ (executory consideration) it becomes important to decide whether that promise is ‘supported by consideration’ (that is, something has been given or promised in exchange). A promise to make a gift at some time in the future will only be enforceable in English law in absence of consideration if put into a special form, that is, a ‘deed’. (For the requirements of a valid deed, see s.1 of the Law of Property (Miscellaneous Provisions) Act 1989.) Where a promise for the future is not contained in a deed, then consideration becomes the normal requirement of enforceability. 3.1.1 The definition of consideration Look at the traditional definition of consideration as set out in Currie v Misa (1875): a valuable consideration, in the sense of the law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss of responsibility given, suffered or undertaken by the other. You will see that it is based around the concept of a ‘benefit’ to the person making the promise (the promisor), or a ‘detriment’ to the person to whom the promise is made (the promisee). Either is sufficient to make the promise enforceable, though in many cases both will be present. This is generally quite straightforward where one side performs its part of the agreement. This performance can be looked at as detriment to the party performing and a benefit to the other party, thus providing the consideration for the other party’s promise. More difficulty arises where the agreement is wholly ‘executory’ (that is, it is made by an exchange of promises, and neither party has yet performed). An example of the separation of benefit and detriment is provided by the situation where, for a sum of money, one party agrees not to pursue an action against another. Even if the right to an action against the other is bound to fail, so long as it is asserted in good faith, the promise not to pursue it is good consideration for the return promise. What, then, is the consideration moving from the party agreeing to give up a right to sue? According to the Currie v Misa definition, it must consist of either a benefit to the party to whom the promise was made or a detriment to the party who made the promise. The undertaking not to sue another is a benefit to the person to whom it is made, who is then freed from the burden of having to defend an action, even if that defence would ultimately prevail. However, the undertaking is not a detriment to the party making it. The enforceability of such a promise was established in Cook v Wright (1861) and recently confirmed by the Court of Appeal in Simantob v Shavleyan EWCA Civ 1105. If the party asserting the right to sue does not in fact believe that this right exists, the undertaking not to pursue the action is said not to amount to good consideration for any counter promise (Wade v Simeon (1846)). This latter rule is most readily justified by reference to the policy ground of never wanting to encourage fraudulent behaviour such as asserting a right to sue another when the party doing so knows that no such right exists. It is clear that English law treats the making of a promise (as distinct from its performance) as capable of being consideration – see the statement of Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd (1915) p.855. Thus, in a wholly executory (i.e. unperformed) contract, the making of the promise by each side is consideration for the promise made by the other side (so rendering both promises enforceable). This leads to a circular argument. A promise cannot be a detriment to the person making it (or a benefit to the person to whom it is made) unless it is enforceable. But it will only be enforceable if it constitutes such a detriment (or benefit). For this reason it is perhaps better to regard the doctrine of consideration as simply requiring ‘mutuality’ in the agreement (that is, something being offered by each side to it, the exchange principle) rather than trying to analyse it strictly in terms of ‘benefits’ and ‘detriments’. Another principle of consideration is that to be able to enforce a promise it must be proven that the promisee has provided consideration for that promise (Tweddle v Atkinson). This principle is closely linked to the doctrine of privity, as Tweddle v Atkinson is held to prove that consideration must move from the promisee but not necessarily to the promisor and that only those party to the contract can enforce the obligations of the contract. Study task 1 Suppose that A arranges for B to clean A’s windows, and promises to pay B £30 for this work. B does the work. How does the analysis of ‘benefit’ and ‘detriment’ apply in identifying the consideration supplied by B for A’s promise of payment? Show feedback You should have noted that cleaning the windows is a benefit to A. It is also a detriment to B (despite the fact that B will receive £30), in that B will be expending effort, and could be using the time to do other things. B’s actions are therefore clearly consideration under the Currie v Misa (1875) definition. Study task 2 As in Study Task 1, but this time A pays the £30 immediately, and B promises to clean the windows next Tuesday. What is the consideration for B’s promise? Show feedback This is the reverse of situation 1. A’s payment of the £30 is a detriment to A and a benefit to B. Again this fits with Currie v Misa. Study task 3 As in Study Task 1, but A and B arrange for the windows to be cleaned next Tuesday, with A paying £30 on completion of the work. Suppose B does not turn up on Tuesday. Is B in breach of contract? Show feedback B is only in breach of contract if A provided consideration for the promise to clean the windows on Tuesday. The only possible consideration is A’s promise to pay £30. As we have seen, the courts are prepared to treat the promise to do something as consideration. By promising to pay £30, A has provided consideration for B’s promise to clean the windows. B is therefore in breach of contract. It is difficult, however, to fit this within the Currie v Misa definition of consideration and is better explained by the concept of ‘mutuality’ in exchange. You might also have noted that if the agreement between A and B was in the form of a unilateral contract with A saying: ‘If you clean my windows on Tuesday, I will pay you £30’, B would not be in breach of contract. 3.1.2 Consideration must be ‘sufficient’ but need not be ‘adequate’ These words can seem interchangeable at first glance but they actually mean something very different in this context. The requirement that consideration must be ‘sufficient’ means that what is being put forward must be something which the courts will recognise, or have recognised as legally capable of constituting consideration. The fact that it need not be ‘adequate’ indicates that the courts are not generally interested in whether there is a match in value between what is being offered by each party, so no need for proportionality. Thus in Thomas v Thomas (1842) the promise to pay £1 per annum rent was clearly ‘sufficient’ to support the promise of a right to live in a house: the payment of, or promise to pay, money is always going to be treated as being within the category of valid consideration. On the other hand, the fact that £1 per annum was not a commercial rent was irrelevant, because the courts do not concern themselves with issues of ‘adequacy’. Consider the case of Chappell v Nestlé (1960). You will see that Lord Somervell justifies the courts’ approach to the issue of ‘adequacy’ by reference to ‘freedom of contract’: ‘A contracting party can stipulate for what consideration he chooses’. The courts will not interfere just because it appears that a person has made a bad bargain. The person may have other, undisclosed, reasons for accepting consideration that appears inadequate. In the case of Chappell v Nestlé the reasoning was presumably that the requirement to send in the worthless wrappers would encourage more people to buy the company’s chocolate. It is sometimes suggested that consideration will not be sufficient if it has no economic value. This explains White v Bluett (1853) where a son’s promise to stop complaining to his father about the distribution of the father’s property was held to be incapable of amounting to consideration. But it is difficult to see that the wrappers in Chappell v Nestlé had any economic value either. Study task 4 Read the case of Ward v Byham (1956). Identify the consideration supplied by the mother. Does the consideration meet the requirement of having economic value? Show feedback Denning LJ found consideration in the mother’s promise to provide for the child’s upkeep. This clearly has economic value, but raises the question of whether doing something which the law already obliges you to do can ever be good consideration. This is discussed below, in the feedback to Activity 3.13. The majority of the Court of Appeal, however, seems to have found consideration in the mother’s promise to ensure that the child was happy. This does not involve anything of economic value. Can it be distinguished from White v Bluett? It is difficult to see how. This suggests that the requirement of economic value may no longer be part of the doctrine of consideration. Study task 5 Read the case of Edmonds v Lawson (2000). What consideration was supplied by the pupil barrister? Does the consideration meet the requirement of having economic value? Show feedback The Court of Appeal found that the pupil did not provide consideration as regards her pupil master, but did do so as regards the chambers. This was on the basis that the chambers benefited from attracting talented pupils who might become tenants and enhance the development of the chambers. As Lord Bingham put it: ‘We take the view that pupils such as the claimant provide consideration for the offer made by chambers… by agreeing to enter into the close, important and potentially very productive relationship which pupillage involves’. The economic benefit to the chambers, if any, is therefore indirect – in that in the future the pupil may become a tenant and bring additional work to the chambers, enhancing its reputation and increasing the income of its members. Again, however, the court does not appear too concerned about the issue of ‘economic value’. This suggests, as does Ward v Byham, that this element in the definition of consideration has less importance than is sometimes alleged. You might also have noticed that the pupil could have argued that she was providing consideration through suffering at least a short-term economic detriment, in that she could have taken more secure paid employment elsewhere. This line of argument was not, however, explored by the Court of Appeal. 3.1.3 Existing obligations as good consideration There are three aspects to this topic, dealing with three different types of existing obligation which may be argued to constitute ‘consideration’. 1. Obligations that arise under the law, independently of any contract. 2. Obligations that are owed under a contract with a third party. 3. Obligations to perform an existing obligation under a contract to the same contracting party. The third situation is, essentially, concerned with the variation of existing contractual obligations as between the parties and the extent to which such variations can become binding. These three situations will be considered in turn. 1. Obligations that arise under the law An example of the first type of existing obligation would be where a public official (such as a firefighter or a police officer) agrees to carry out one or more of their duties in return for a promise of payment from a member of the public. In that situation the promise of payment will not generally be enforceable. This is either because there is no consideration for the promise (the public official is only carrying out an existing duty) or, more probably, because public policy generally suggests that the law should not encourage the opportunities for extortion that enforcing such a promise would create. Where, however, the official does more than is required by the existing obligation, then the promise of payment will be enforceable, as shown by Glasbrook Bros Ltd v Glamorgan CC (1925). This position at common law is now, in relation to police services, enshrined in statute. Section 25 of the Police Act 1996 distinguishes between performing their duty of doing what is necessary to prevent crime for which they cannot charge and doing something else at the request of an individual for which they can charge. This provision and its identical predecessor has been considered in a number of cases concerning undertakings by football clubs to pay for police services on match days. In the latest case of Leeds United FC v Chief Constable of West Yorkshire EWCA Civ 113, the Court of Appeal held that the police were under a duty to prevent crime, maintain law and order and protect property which extended to providing protection in the vicinity of land owned by the club. Consequently, the provision of police services in areas adjacent to the football ground which the club neither owned nor controlled could not be charged for. Study task 6 In Collins v Godefroy (1831), why was the promise of payment unenforceable? Show feedback The plaintiff in Collins v Godefroy, in giving evidence as a witness in response to a subpoena, was only doing his public duty. It is clearly undesirable for witnesses (other than expert witnesses) to be paid for giving testimony. This principle is now reflected in statutory provisions which allow police authorities to charge for ‘special services’ only that extend beyond their general obligation to prevent crime, protect property and maintain law and order. Study task 7 In Ward v Byham (1956), why was the father’s promise enforceable? Show feedback There are at least two possible answers to this question. The first is, as suggested by Lord Denning, that the performance of an existing legal obligation should be treated as good consideration, ‘so long as there is nothing in the transaction which is contrary to the public interest’ (see also Williams v Williams (1957)). The more orthodox view, which was taken by the majority in Ward v Byham was that the mother had done more than her legal duty in relation to her care for her daughter (i.e. following the same line as Glasbrook Bros Ltd v Glamorgan CC). The implication is that if the mother had done simply what the law required her to do she would not have provided good consideration. The problem with the majority view on the particular facts of the case is that, as noted in Section 3.1.2, it is difficult to see that the mother’s actions had any economic value. A different approach would emphasise as consideration the mother’s preparedness to show that the child was well looked after and happy. The mother was under a statutory obligation to maintain the child but not to prove this. If this is correct, her undertaking, upon request, to demonstrate the child’s positive welfare might constitute an extra undertaking sufficient to satisfy the orthodox test. 2. Obligations that are owed under a contract with a third party In the second type of situation, which regards the performance of, or promise to perform, an existing obligation owed under a contract with a third party, the position is much more straightforward. The courts have consistently taken the view that this can provide good consideration for fresh promise. Thus it has been applied to the fulfilling of a promise to marry (Shadwell v Shadwell (1860) – such a promise at the time being legally binding) and to the unloading of goods by a firm of stevedores, despite the fact that the firm was already obliged to carry out this work under a contract with a third party (The Eurymedon (1975)). The Privy Council confirmed, in Pao On v Lau Yiu Long (1980), that the promise to perform an existing obligation owed to a third party can constitute good consideration. AB AB A promises B to teach for one hour at the University. B promises to pay £X for that teaching. A C A C C, one of the university students, promises to pay £Y for the hour of teaching. A agrees to do the teaching. In this situation if A does the promised hour of teaching they can claim both £X from B and £Y from C. Although A has done no more than contractually obliged to do under the contract with B, this is held to be valid consideration for the promise by C to pay £Y. The consideration from A can be seen as the ‘detriment’ of being open to liability for breach of contract to both B and C should A fail to perform. 3. Obligations to perform an existing obligation under a contract to the same contracting party This is essentially where there is a variation to an existing contractual obligation between contracting parties – this is the most difficult to employ as consideration. This results from the fact that a principle which was clear, though impractical in some circumstances, has now been modified and the extent of this modification is unclear. Performance of an existing obligation The general rule in relation to the variation of existing obligation can be seen in the case of Stilk v Myrick (1809) (which you should read in full). Stilk v Myrick was long accepted as establishing the principle that the performance of an existing contractual obligation could never be good consideration for a fresh promise, to pay more in this case, from the person to whom the obligation was owed. The sailors’ contract obliged them to sail the ship back home. Thus in bringing the ship back to London they were doing nothing more than they were already obliged to do under their original contract. This could not be good consideration for a promise of additional wages. Only if the sailors had done something over and beyond their existing obligation could the variation (the promise of extra payment) become enforceable, their extra work constituting fresh consideration for the promise to pay extra (Hartley v Ponsonby). Study task 8 What other explanation can there be for the decision in Stilk v Myrick? Show feedback The main alternative explanation of Stilk v Myrick is that it was based on the fact that the pressure put on the captain by the crew was a kind of extortion. To that extent, the case is an early example of a type of ‘economic duress’ (see Chapter 10). This way of viewing the case has become more attractive since the Court of Appeal’s decision in Williams v Roffey, since it avoids the potential conflict between the two cases. Prior to that, however, the courts regularly treated Stilk v Myrick as being based solely upon issues of consideration. For detailed discussion of this aspect of the case, and the differences between the reports of the case, see Luther, P. ‘Campbell, Espinasse and the sailors: text and context in the common law’ (1999) Legal Studies 526. See also Harris v Watson (1791). Study task 9 How can Stilk v Myrick be distinguished from the factually similar case of Hartley v Ponsonby (1857), where the recovery of additional payments was allowed? Show feedback The main basis for distinction is that in Hartley v Ponsonby the situation had become so perilous as a result of the reduction in the crew that the surviving members were, in continuing with the voyage, doing more than their original contract would have obliged them to do. The case is thus an example of the principle that doing more than your existing obligation will amount to good consideration for a fresh promise. However, this rule has now become less certain since the important decision of the Court of Appeal in Williams v Roffey Bros & Nicholls (Contractors) Ltd (1991). This case raised the question of whether Stilk v Myrick could still be said to be good law. The plaintiff carpenters, in completing the work on the flats, appeared to be doing no more than they were already obliged to do under their contract with the defendants. How could this constitute consideration for the defendants’ promise of additional payment? The application of Stilk v Myrick would point to the promise being unenforceable. Yet the Court of Appeal held that the plaintiffs should be able to recover the promised extra payments for the flats which they had completed. The Court came to this conclusion by giving consideration a wider meaning than had previously been thought appropriate. In particular, Glidewell LJ pointed to the ‘practical benefits’ that would be likely to accrue to the defendants from their promise of the additional money. They would be: ensuring that the plaintiffs continued work and did not leave the contract uncompleted avoiding a penalty clause which the defendants would have had to pay under their contract with the owners of the block of flats avoiding the trouble and expense of finding other carpenters to complete the work. The problem is that very similar benefits to these could be said to have accrued to the captain of the ship in Stilk v Myrick. The main point of distinction between the cases then becomes the fact that no pressure was put on the defendants in Williams v Roffey to make the offer of additional payment. In other words, the alternative explanation for the decision in Stilk v Myrick, as outlined in the feedback to Activity 3.8, above, is given much greater significance. The effect is that it will be much easier in the future for those who act in response to a promise of extra payment, or some other benefit, by simply doing what they are already contracted to do, to enforce that promise (it is important to cross reference your reading here with Topic 10 in relation to economic duress). You should note that Glidewell LJ summarises the circumstances where, in his view, the ‘practical benefit’ approach will apply in six points, which relate very closely to the factual situation before the court and emphasise the need for the absence of economic duress or fraud. The application of Williams v Roffey was held to apply when: 1. There was a contract for the supply of goods or services. 2. A was unable to perform as promised (which can include economic reasons). 3. B agreed to pay more. 4. B obtained a practical benefit from that promise (as outlined above). 5. There was no fraud or duress by A to obtain that promise. 6. If the above are satisfied then consideration is found. There is no reason, however, why later courts should be restricted by these ‘criteria’ in applying the Williams v Roffey approach. It was previously thought that Williams v Roffey had not affected the related rule that part payment of a debt can never discharge the debtor from the obligation to pay the balance – see Re Selectmove (1995). However, in MWB Business Exchange Ltd v Rock Advertising Ltd EWCA Civ 553 the Court of Appeal held that a property owner was bound by an oral agreement with the occupier who had failed to make payments as provided by the parties’ original written agreement to accept a late payment and a revised schedule of further payments. It was said that the subsequent agreement conferred practical benefits upon the landowner who recovered some of the arrears immediately and benefitted because the premises would not now be left empty for a period. The case may therefore be characterised as one where a contractor promises to do less, because the agreement to accept deferred payment is functionally equivalent to an agreement to accept a lesser sum on the date originally specified (see Foakes v Beer (1884) below). If MWB can be characterised in this way, then henceforth a promise to do less than, as opposed to the promise in Williams v Roffey to do the same as, that which was originally undertaken can constitute good consideration where that promise confers a practical benefit upon the other party. The Court of Appeal’s decision in the MWB case was subject to an appeal to the Supreme Court. Unfortunately, the Supreme Court did not take the opportunity to review the changes to the doctrine of consideration made by the Court of Appeal in Williams v Roffey, holding instead that the purported modification was ineffective because of a provision in the contract to the effect that the written contract could not be varied orally (called a ‘NOM’ – no oral modification clause). This conclusion made it unnecessary to discuss whether the modification was supported by valid consideration as any such discussion would be obiter dicta. Lord Sumption said the consideration issue was ‘difficult’ and important and so should be reserved for an enlarged panel of Justices when it formed the ratio decidendi of a case. This use of an enlarged bench has become standard when a re-examination of a key area of law is attempted as in Cavendish Square Holdings BV v Makdessi and ParkingEye v Beavis UKSC 67 where the so called ‘penalty doctrine’ was reformulated by the UK’s highest appellate court for the first time in a century (see further Section 14.7). The more limited decision of the Supreme Court in the MWB case can be characterised as an acceptance of the principle that the courts should enforce a contract term intended to regulate how the contract in which it is contained can be amended. This aspect of the case was followed by the Court of Appeal in NHS Commissioning Board v Vasant EWCA Civ 1245. Part payment of debt This rule does not derive from Stilk v Myrick but from the House of Lords decision in Foakes v Beer (1884). As with the general rule about existing obligations, if something extra is done (for example, paying early, or giving goods rather than money), then the whole debt will be discharged (as held in Pinnel’s Case (1602)). But in Foakes v Beer (1884) it was said that payment of less than is due on or after the date for payment will never provide consideration for a promise to forgo the balance. In Foakes v Beer the House of Lords held, with some reluctance, that the implication of the rule in Pinnel’s Case was that Mrs Beer’s promise to forgo the interest on a judgment debt, provided that Dr Foakes paid off the main debt by instalments, was unenforceable. This common law rule has been regarded with some disfavour over the past 100 years and in some circumstances its effect can be avoided by the equitable doctrine of promissory estoppel (discussed below, at Section 3.2). It was seen above that it is further qualified by the interpretation of Williams v Roffey which was used by the Court of Appeal in MWB Business Exchange Ltd v Rock Advertising Ltd (2016) because in many situations it may be to the creditor’s ‘practical benefit’ to get part of the debt, rather than to run the risk of receiving nothing at all. In such circumstances, the agreement to accept less will be supported by consideration and so will be contractually binding. Although in MWB the Court of Appeal appeared to expand the area of application of the ‘practical benefit’ approach of Williams v Roffey, the latter decision has attracted some criticism elsewhere. In South Caribbean Trading Ltd (‘SCT’) v Trafigura Beeher BV (2004) Colman J doubted the correctness of the decision in Williams v Roffey. In particular, Colman J noted that the decision was inconsistent with the long-standing rule that consideration must move from the promisee. Study task 10 Read the case of Foakes v Beer, preferably in the law reports – (1884) 9 App Cas 605 (although extracts do appear in Poole). Which of the judges expressed reluctance to come to the conclusion to which they felt the common law (as indicated by Pinnel’s Case) bound them? What was the reason for this reluctance? Show feedback You should have noted the speeches of Lord Selborne at p.613, Lord Blackburn at p.622 and Lord Fitzgerald at p.630. Study task 11 Why do you think that in the past the Court of Appeal has been reluctant to overturn the decision in Foakes v Beer? Do more recent cases exhibit a more flexible approach? Show feedback There are two main reasons which you might have identified. First, there is the problem that Foakes v Beer is a decision of the House of Lords. The doctrine of precedent does not therefore permit the Court of Appeal to overrule it. A full reconsideration of the case will therefore have to await a case which is appealed to the House. Secondly, the Court may well have been reluctant to embark on a general relaxation of the rule as to part payment of debts, because it is a situation where the debtor may often be able to put the creditor under pressure to accept such an arrangement, and such pressure may go beyond what the courts feel is acceptable. See, for example, the case of D & C Builders v Rees (1966), discussed in Section 3.2 Promissory estoppel. It may be the case that the development of the doctrine of economic duress examined in Section 10.1 which now offers better, perhaps sufficient, protection from unfair pressure is the reason why Foakes v Beer, although not overruled, has recently been qualified by the Court of Appeal’s extension of the concept of ‘practical benefit’ in MWB Business Exchange Ltd v Rock Advertising Ltd (2016). 3.1.4 Past consideration A further rule about the sufficiency of consideration states that generally the consideration must be given after the promise for which it is given to make it enforceable. A promise which is given only when the alleged consideration has been completed is unenforceable. The case of Re McArdle (1951) provides a good example. The plaintiff had carried out work refurbishing a house in which his brothers and sister had a beneficial interest. He then asked them to contribute towards the costs, which they agreed to do. It was held that this agreement was unenforceable because the promise to pay was unsupported by consideration. The only consideration that the plaintiff could point to was his work on the house but this had been completed before any promise of payment was made. It was therefore ‘past consideration’ and so not consideration at all. As with many rules relating to consideration, there is an exception to the rule about past consideration. The circumstances in which a promise made after the acts constituting the consideration will be enforceable were thoroughly considered in Pao On v Lau Yiu Long (1979). Lord Scarman laid down three conditions which must be satisfied if the exception is to operate. 1. The act constituting the consideration must have been done at the promisor’s request. (See, for example, Lampleigh v Braithwaite (1615).) 2. The parties must have understood that the work was to be paid for in some way, either by money or some other benefit. (See, for example, Re Casey’s Patents (1892).) 3. The promise would be legally enforceable had it been made prior to the acts constituting the consideration. The second of these conditions will be the most difficult to determine. The court will need to take an objective approach and decide what reasonable parties in this situation would have expected as regards the question of whether the work was done in the clear anticipation of payment. Study task 12 Why was the approach taken in Re Casey’s Patents not applied so as to allow the plaintiff to succeed in Re McArdle, since it was obvious that the improvement work would benefit all those with a beneficial interest in the house? Show feedback The problem for the plaintiff in Re McArdle was that he acted by himself, without any request, or even approval, from the rest of the family. By contrast in Re Casey’s Patents the owners of the patents knew that the manager was doing the work. In Re McArdle it could not be said, looking at the events objectively, that all the parties anticipated that the work would be paid for, because at the time only the plaintiff knew that the work was being done. The same answer would be arrived at by applying Lord Scarman’s test in Pao On v Lau Yiu Long, since neither of the first two of his conditions would be satisfied. Study task 13 Jack works into the night to complete an important report for his boss, Lisa. Lisa is very pleased with the report and says, ‘I know you’ve worked very hard on this: I’ll make sure there’s an extra £200 in your pay at the end of the month’. Can Jack enforce this promise? Show feedback This is a situation where prima facie Lisa’s promise is unenforceable because Jack’s work is ‘past consideration’. Does the exception apply? Presumably the work was done at Lisa’s request, so the first of Lord Scarman’s conditions is satisfied. Was it anticipated by both parties that the work would be paid for? This is more difficult for Jack. If he has simply worked the extra hours on his own initiative, then his claim may well fall at this point. There would need to be some evidence that Lisa was aware that he was working extra hours, and perhaps evidence of past practice in making ‘bonus’ payments in this type of situation. What about the third of Lord Scarman’s conditions? Would Lisa’s promise be enforceable if it had been made in advance of Jack’s doing the work? The only problem for Jack here is whether what he is doing is simply part of his normal obligations as an employee. If it is then he may fall foul of the rules about existing obligations discussed above. If, however, he is doing more than his contract of employment obliges him to do, there is no reason why the third condition would not be met. Self-assessment questions 1. What is an ‘executory’ contract? 2. Is the performance of an existing obligation owed to a third-party good consideration? 3. What principle relating to consideration is the House of Lords’ decision in Foakes v Beer authority for? Summary The doctrine of consideration is the means by which English courts decide whether promises are enforceable. It generally requires the provision of some benefit to the promisor, or some detriment to the promisee, or both. The ‘value’ of the consideration is irrelevant, however. The performance of existing obligations will generally not amount to good consideration, unless the obligation is under a contract with a third party, or the promisee does more than the existing obligation requires. This rule is less strictly applied following Williams v Roffey. Part payment of a debt can never in itself be good consideration for a promise to discharge the balance. Consideration must not be ‘past’, unless it was requested, was done in the mutual expectation of payment and is otherwise valid as consideration. (Mini Lecture 3) In this lecture and the following lecture, we are going to look at a topic called Promissory Estoppel. Now, a promissory estoppel is a way in which a promise will be given some limited legal force. Just as a promise can be given full legal force, if that promise becomes a contractual obliga on, supported by considera on, agreement and an inten on to create legal rela ons. If that promise instead cons tutes a promissory estoppel, it may be given a more limited legal enforcement. The objec ve today is to introduce the concept of promissory estoppel, and more par cularly, to look at the three requirements that must be sa sﬁed for one to be eﬀec ve. What is a promissory estoppel? We have a quite long deﬁni on here from a case called Central London Property Trust Company v High Trees House, usually known as the High Trees case because this is the case in which Lord Denning invented the doctrine of promissory estoppel. A promissory estoppel exists where, by words or conduct a person makes an unambiguous representa on as to his future conduct, intending the representa on to be relied upon and to aﬀect the legal rela ons between the par es. That is the ﬁrst requirement, a promissory estoppel that one party must make a representa on to the other eﬀec vely, that they will not insist on their strict legal rights against that person. The second requirement, we some mes call reliance, because it's necessary that the representee, the person to whom the representa on was made, must alter their posi on in reliance on it. Finally, the third requirement has to be the case that the party relying upon this estoppel has acted equitably. Central London Property Trust Company v High Trees House, the High Trees case, in which the doctrine in its modern form was created. There was a 99 year lease of that property from September, 1937 at a rent of £2,500 per annum. The tenant was actually then subletting, letting to others these properties, while obviously following the outbreak of the Second World War in 1939, London became a less desirable place to live and it was hard for the tenant to re-let these properties, so an agreement was come to between the landlord and the tenant. That's the agreement of 3rd of January, 1940, eﬀectively saying that the tenant could pay half rent while the wartime conditions prevailed. In 1945 after the war, the landlord said, "I now want full rent for the future." The decision in the case was that the landlord could have full rent from 1945, and that was because the concession that you can pay half rent was only meant to endure, to last for the time when wartime conditions prevailed, and they had ceased to prevail by 1945. Lord Denning went on to say, if the landlord had claimed the rent for the wartime years, the full rent, he would not be allowed to get it. The doctrine of promissory estoppel, which is the doctrine that stops the landlord being able to claim the rent during the wartime years, was not part of the decision of the case. It was what we call an obiter dicta by an obiter dicta, we mean it was not the decision in the case, it was a statement about the law to be applied, not to the facts of this case, but to a hypothe cal. The facts of this case were, could a claim be made for the rent a er war me condi ons ended? Yes, they could. The hypothe cal facts that Lord Denning referred to was, if you were claiming for the wartime years, you would not be allowed to recover for that period. Let's look at the ﬁrst requirement of this promissory estoppel. Estoppel is an old English word and it really just refers to the fact that what we are saying is that someone has made a promise and they are stopped, estopped from going back on it. The ﬁrst requirement for a promissory estoppel is that the promisor has made an unequivocal promise that he will not insist on his strict contractual rights against the other party. Now, there has to be a clear promise. The promise in High Trees was an express promise. The landlord said, "You can pay me half rent." The requirement is only that the promise is unequivocal, clear. It is not a requirement that it has to be express or spoken. It can be an implied promise. The case that is authority for saying the promise can be implied is the case of Hughes v Metropolitan Railway. The facts of Hughes are slightly complicated, but the principle is simple. The principle is just that the promise has to be clear, but it can be expressed as in High Trees or implied, as in Hughes v Metropolitan Railway. The way it was implied in Hughes v Metropolitan Railway is that there was a tendency the tenant was responsible in the tenancy for keeping the premises in good repair. He failed to do so. The landlord gave a notice to the tenant that the premises must be put in good repair. There was a provision in the lease that if a notice to repair was given, and was not complied within six months, that landlord could forfeit the tenant's lease. What happened was that the repairs were not done. The landlord claimed to forfeit the tenant's lease, but the tenant said, "You can't do that." You are estopped because you impliedly promised me that the time of six months during which I had to do the repairs was suspended. Where did this come from? It didn't come from an express promise by the landlord. Rather, it was said that when the landlord during that period began negotiations with the tenant to buy out the tenant's lease, that amounted to an unequivocal, a clear promise, but an implied one that the six month period to eﬀect repairs was suspended. If the facts are diﬃcult, just remember, Hughes is authority for the proposi on that the clear promise that can give rise to a promissory estoppel can be implied. There's a second requirement and a third requirement. These requirements are cumula ve, by which I mean all three requirements have to be sa sﬁed before we can say a promissory estoppel is established. The second requirement is that the promisee must rely upon the promise. The reliance must be such that we would say it is unfair or unequitable to allow the promisor to go back on his word. That test for reliance comes from a case called The Post Chaser. Now, it is some mes said that there are three diﬀerent types of reliance, neutral, beneﬁcial, and detrimental. Imagine I own three studio ﬂats, I let them to three students for a rent of £1000 a month. Some time later, the students tell me they can't aﬀord the rent and I agree to charge them only £500 a month for the rest of the term. Suppose that student A uses the money that they save each month to give to charity. Suppose that student B takes the £500 they save every month and puts it under the bed. Assume that student C, the third student, takes the money they save each month, goes gambling with it, and wins on the roulette tables or whatever. The ﬁrst student has detrimentally relied on my promise, because what they've done is they've taken the money I said they no longer need to pay me and they've given it away to charity. They have made their posi on worse. The second student has just put the money underneath the bed. They've neutrally relied. The third student has beneﬁcially relied because they've taken the money they no longer have to pay to me, and they've invested it on the roulette tables, they gambled with it, but they've got far more money back. The test for reliance, as to what kind of reliance sa sﬁes promissory estoppel is stated to be reliance, such that we would say it would be inequitable to allow the promisor to go back on his word. The case of detrimental reliance, the ﬁrst student, is the strongest case, the most convincing case for saying that it would be inequitable, unfair to allow me to go back on my word. The test is not stated to be only detrimental. If either of the other two types of reliance, neutral or beneﬁcial. If looking at either of those you would s ll say it is inequitable to allow the promisor to go back on his word, then that will be suﬃcient reliance. Let's understand this clearly. Detrimental reliance is not a requirement, but detrimental reliance is the strongest case to sa sfy the actual test, which is that there must be reliance such that we can say it will be inequitable to allow the promisor to go back on his word. The third requirement of promissory estoppel is that the person who is relying upon that as estoppel must have acted equitably. They must themselves have acted fairly. In D & C Builders v Rees, a small building ﬁrm did a job for Mrs. Rees. The building ﬁrm was in diﬃcult ﬁnancial circumstances. Mrs. Rees was aware of this and she sought to take advantage of it. What she did was she said to the builders, "I'm not going to pay you the full amount. I'm only going to pay you part. Take it or leave it." They felt they had to accept it because they were desperate for money. They then later sued for the balance owed and Mrs Rees said, "You're estopped. You told me that you would accept this part payment in full payment." The ﬁrst requirement of promissory estoppel was established, because the builders did say, "We have no choice, we'll have to accept your terms that this is the full and ﬁnal payment." Whether you would say that Mrs. Rees relied on that such that it would be inequitable to allow the builders to go back on their word is probably not sa sﬁed. The reason the promissory estoppel could not be relied on by Mrs. Rees was the ﬁnal reason. They Court of Appeal said, Mrs. Rees cannot rely on a promissory estoppel because she herself did not act fairly. She knew the builders were in ﬁnancial diﬃculties and she sought to take advantage of it. There was no promissory estoppel, so the builders could sue for the full amount. Remember that a promissory estoppel is just a legal concept. There are only ﬁve things that can ever be asked about promissory estoppel. Three of them relate to the requirements of promissory estoppel, the other two things that can be asked about promissory estoppel relate to its eﬀect. (Mini Lecture 4) There were three requirements for the establishment of a promissory estoppel, an unequivocal promise by one party that they will not insist on their strict contractual rights, reliance of a par cular type upon that promise by the promisee, and the person relying upon the estoppel must ﬁnally have acted equitably. If all three of those requirements are established, we then go on to ask what is the eﬀect, what is the legal eﬀect of the promissory estoppel? There are two issues that we will look at. The ﬁrst is to ask whether promissory estoppel is suspensory or ex ncted. What we mean by this is that when someone says it will not insist on their strict contractual rights, are they forever bound by that? If they are, then that modiﬁca on of their previous contract to say they won't insist on their strict contractual rights is ex nc ve because it is made a permanent change to their rights. Whereas, if the eﬀect of a promissory estoppel was suspensory, it would mean that someone could revive the right, that the promise that they won't insist on their strict contractual rights is a temporary thing, I believe, which can later be changed. Now, the answer to the ques on is a promissory estoppel suspensory or ex nct is both. What do I mean by that? A promissory estoppel is “extrac ve” as to “past obliga ons” but is a “suspensory” as to “future obliga ons”. That proposi on arose from li ga on in a case called Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd. The facts of that case are quite complicated and there were two strands to the litigation. One ended in the Court of Appeal and the other in the House of Lords. One of those cases established a proposition that promissory estoppel is extinctive as to past obligations and the other, that it is suspensory as to future obligations. Rather than look at the facts of Tool Metal Manufacturing, which as I say are complex, I want to use a hypothe cal. This is a varia on, this example, a varia on of the facts of High Trees. If you recall, the actual facts of High Trees were that a lease was entered before the war. There was an undertaking, the outbreak of war, the landlord would accept half rent. Then after the wartime conditions had ﬁnished, the landlord asked for full rent and was allowed it because the concession had ceased to operate. The hypothe cal, the change I'm making to illustrate the present point is to say, let's suppose that the landlord had asked to go back to full rent, not in 1945 after the wartime conditions had ﬁnished, but instead, in 1942. On the basis of what I've said of Tool Metal, the eﬀect of the landlord in 1942 saying, "Can I go back to full rent?" Would be to lose the right to claim the balance of the underpayments from 1939 to 1942. He would be entitled to restore his right to full payment going forward from 1942 because promissory estoppel is extinctive as to the past, but suspensory as to the future. It is almost as if, what it is as if, as each payment of half rent was made, at that moment the landlord lost the right to claim the balance of that payment, but could restore upon giving reasonable notice his right to full payment going forward. The second issue that arises when we ask, what is the eﬀect of a promissory estoppel, is some mes put in this interes ng way of asking, "Does promisary estoppel operate as a shield or does it operate as a sword?" What we mean is, can a promisary estoppel only be used defensively or can it be used oﬀensively? In High Trees, of course, it's being used defensively because what is happening is the landlord is saying, "I want full rent," and the tenant is saying, "Oh no, you can't, you are a stopped prevented." The answer to this ques on is that it can only be used defensively. It is a shield but not a sword. In England and Wales, the promissory estoppel does not create a right in one party to be able to sue another. Rather, it creates a defense in a party when they are sued by the other. In Combe v Combe, the case which establishes this, a promise was made by a man to his estranged wife that he would pay a sum of money regularly. The wife sued to enforce that promise, not on the basis that it was contractually binding, but simply on the basis of promissory estoppel. As you can see from the date of the case, it follows not long a er the High Trees case and the Court of Appeal said, "No. If you want to sue to enforce a promise, you have to show the requirements of a full contract. Promissory estoppel is not an alterna ve way of enforcing a promise in the sense of crea ng a right to sue somebody, rather, it operates defensively to allow you to resist someone enforcing a contract". Now, just in passing, we should note that the law has developed diﬀerently in Australia. According to the case of Walton Stores v Maher in Australia, a promissory estoppel can be used oﬀensively. It does create a cause of ac on. If you make a promise to me in Australia, I may be able to enforce that promise on the basis that a full contract has come into existence but alterna vely, I may be able to enforce that promise on the basis of a promissory estoppel, but that is not the law here where promissory estoppel operates as a shield, but not as a sword. There's some further reading on the use of promissory estoppel, the eﬀects of promissory estoppel in McKendrick, and they're indicated on this slide. That now completes our account of promissory estoppel. Thank you. 3.2 Promissory estoppel 3.2.1 The equitable concept of promissory estoppel The doctrine of promissory estoppel is concerned with the modification of existing contracts. The position under the classical common law of contract was that such modification would only be binding if consideration was supplied and a new contract formed. Thus in a contract to supply 50 tons of grain per month at £100 per ton for five years, if the buyer wanted to negotiate a reduction in the price to £90 per ton, because of falling grain prices, this could only be made binding if the buyer gave something in exchange (for example, agreeing to contribute to the costs of transportation). Alternatively, the two parties could agree to terminate their original agreement entirely and enter into a new one. The giving up of rights under the first agreement by both sides would have sufficient mutuality about it to satisfy the doctrine of consideration. These procedures are a cumbersome way of dealing with the not uncommon situation where the parties to a continuing contract wish to modify their obligations in the light of changed circumstances. It is not surprising, therefore, that the equitable doctrine of promissory estoppel has developed to supplement the common law rules. This allows, in certain circumstances, promises to accept a modified performance of a contract to be binding, even in the absence of consideration. The origin of the modern doctrine of promissory estoppel is found in older cases such as Hughes v Metropolitan Railways but was more widely developed in the judgment of Denning J (as he then was) in the case of Central London Property Trust Ltd v High Trees House Ltd (1947). In Collier v P & MJ Wright (Holdings) Ltd (2007), Arden LJ described Denning J’s development of the law in the High Trees case as ‘brilliant’. The High Trees case concerned the modification of the rent payable on a block of flats during the Second World War. The importance of the case, however, lies in the statement of principle which Denning set out – to the effect that ‘a promise intended to be binding, intended to be acted on, and in fact acted on, is binding so far as its terms properly apply’. Applying this principle, Denning held that a promise to accept a lower rent during the war years was binding on the landlord, despite the fact that the tenant had supplied no consideration for it. You should read this case in full. The common law long recognised the concept of ‘estoppel by representation’. Such an estoppel only arises, however, in relation to a statement of existing fact, rather than a promise as to future action: see Jorden v Money (1854). The concept of ‘waiver’ had also been recognised by both the common law and equity as a means by which certain rights can be suspended, but then revived by appropriate notice. See, for example, Hughes v Metropolitan Railway (1877). It was this case upon which Denning J placed considerable reliance in his decision in High Trees House. The concept of waiver, however, had not previously applied to situations of part payment of debts. Under the modern law the concept of waiver has been effectively subsumed within ‘promissory estoppel’. 3.2.2 The requirements of and limitations on promissory estoppel The doctrine of estoppel has been considered in a number of reported cases since 1947 and now has fairly clearly defined limits. A most valuable summary of the general effect of these cases was provided by Kitchin LJ in MWB Business Exchange Ltd v Rock Advertising Ltd (2016) (appealed to the Supreme Court at UK SC 24 where promissory estoppel was not discussed; see Section 3.1.3): Drawing the threads together, it seems to me that all of these cases are best understood as illustrations of the broad principle that if one party to a contract makes a promise to the other that his legal rights under the contract will not be enforced or will be suspended and the other party in some way relies upon that promise, whether by altering his position or in any other way, then the party who might otherwise have enforced those rights will not be permitted to do so where it would be inequitable having regard to all of the circumstances. Need for a clear and unequivocal promise The promise by one party to a contract that he will not insist on his strict legal rights under a contract must be clear and unequivocal, but may nonetheless be express (as in the landlord’s promise in High Trees to accept half rent) or may arise from conduct as occurred in Hughes v Metropolitan Railway (1877). Where the words used to make the statement claimed as the basis for a promissory estoppel were ambiguous and capable of being interpreted in several ways (including one which would not support the estoppel) then the words could not be said to found an estoppel unless the representee sought and obtained clarification of the statement. See Kim v Chasewood Park Residents EWCA Civ 239 and Closegate Hotel Development (Durham) Ltd v McLean EWHC 3237 (Ch). Need for reliance At the heart of the concept of promissory estoppel is the fact that the promisee has relied on the promise. It is this that provides the principal justification for enforcing the promise. The lessees of the property in High Trees House had paid the reduced rent in reliance on the promise from the owners that this would be acceptable. They had no doubt organised the rest of their business on the basis that they would not be expected to pay the full rent. It would therefore have been unfair and unreasonable to have forced them to comply with the original terms of their contract. It has sometimes been suggested that this reliance must be ‘detrimental’, but Denning consistently rejected this view (see, for example, W J Alan & Co v El Nasr (1972)) and it is now accepted that reliance is sufficient when it is in circumstances where it would be inequitable to allow the promisor to go back on his word (The Post Chaser (1982)). A ‘shield not a sword’ This is related to the first point (concerning the need for an existing relationship). The phrase derives from the case of Combe v Combe (1951). A wife was trying to sue her former husband for a promise to pay her maintenance. Although she had provided no consideration for this promise, at first instance she succeeded on the basis of promissory estoppel. The Court of Appeal, however, including Lord Denning, held that promissory estoppel could not be used as the basis of a cause of action in this way. Its principal use was to provide protection for the promisee (as in High Trees House – providing the lessees with protection against an action for the payment of the full rent). As Lord Denning put it: consideration ‘remains a cardinal necessity of the formation of a contract, though not of its modification or discharge.’ English courts have resisted attempts to found an action on a promissory estoppel. See Baird Textile Holdings Ltd v Marks & Spencer Plc (2001) although note the different approach taken by the High Court of Australia in Waltons Stores (Interstate) Ltd v Maher (1988). Must be inequitable for the promisor to go back on the promise The doctrine of promissory estoppel has its origins in equitable ‘waiver’. It is thus regarded as an equitable doctrine. The importance of this is that a judge is not obliged to apply the principle automatically as soon as it is proved that there was a promise modifying an existing contract which has been relied on. There is a residual discretion whereby the judge can decide whether it is fair to allow the promise to be enforced. The way that this is usually stated is that it must be inequitable for the promisor to withdraw the promise. What does ‘inequitable’ mean? It will cover situations where the promisee has extracted the promise by taking advantage of the promisor. This was the case, for example, in D & C Builders v Rees (1966) where the promise of a firm of builders to accept part payment as fully discharging a debt owed for work done was held not to give rise to a promissory estoppel, because the debtor had taken advantage of the fact that she knew that the builders were desperate for cash. Impropriety is not necessary, however, as shown by The Post Chaser (1982), where the promise was withdrawn so quickly that the other side had suffered no disadvantage from their reliance on it. In those circumstances it was not inequitable to allow the promisor to escape from the promise. Doctrine is generally suspensory Whereas a contract modification which is supported by consideration will generally be of permanent effect, lasting for the duration of the contract, the same is not true of promissory estoppel. Sometimes the promise itself will be time limited. Thus in High Trees House it was accepted that the promise to take the reduced rent was only to be applicable while the Second World War continued. Once it came to an end, the original terms of the contract revived. In other cases, the promisor may be able to withdraw the promise by giving reasonable notice. This is what was done in Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd (1955). To this extent, therefore, the doctrine is suspensory in its effect. While it is in operation, however, a promissory estoppel may extinguish rights, rather than delay their enforcement. In both High Trees House and the Tool Metal Manufacturing case it was accepted that the reduced payments made while the estoppel was in operation stood and the promisor could not recover the balance that would have been due under the original contract terms. More recently, however, it was said obiter dicta in MWB Business Exchange Ltd v Rock Advertising Ltd (2016) that even though a creditor accepts part payment of a debt by instalments it will not necessarily result in the ‘extinction’ of the creditor’s right to claim the balance of any instalment in respect of which part payment has been made. Study task 14 Why was Denning’s statement of principle in High Trees House seen as such a potentially radical development in the law? Show feedback There are two main reasons. First, if taken at face value, the principle seems to deny the need for consideration altogether. As we shall see, however, later cases have clarified that promissory estoppel only applies in a limited range of situations. Secondly, although Denning purported to be merely building on the concept of ‘waiver’, and Hughes v Metropolitan Railway (1877) in particular, that concept had never been applied to the part payment of debts (which was effectively the situation in High Trees House). Prior to that it had always been thought that Foakes v Beer (which came after Hughes, and did not even refer to it) precluded the extension of the concept in this way. Study task 15 Do you think that the doctrine of promissory estoppel is still needed, now that Williams v Roffey has made it much more likely that a modification of a contract will be found to be supported by consideration? Show feedback It is true that the broader view of consideration is likely to reduce the need to use promissory estoppel – though it is still not possible to be certain how far the Williams v Roffey development will be taken. The area where promissory estoppel will certainly still be required is, however, where the modification of a contract involves the promisor remitting part of a debt (as in High Trees House, in relation to the rent). As made clear by Re Selectmove, Williams v Roffey has not affected the rule in Foakes v Beer. Where a contractual modification is of this kind, therefore, it will be necessary for the promisee to provide consideration, or establish a promissory estoppel, in order to be able to enforce the promise. Self-assessment questions 1. How does ‘promissory estoppel’ differ from common law estoppel, and from ‘waiver’? 2. What is the meaning of the phrase ‘a shield not a sword’ in the context of promissory estoppel? 3. What important statement of principle did Denning J make in the case of Central London Property Trust Ltd v High Trees House Ltd? Summary Generally, the modification of a contract requires consideration to be binding. The doctrine of promissory estoppel, however, provides that in certain circumstances a promise may be binding even though it is not supported by consideration. The main use of the doctrine has been in relation to the modification of contracts, but it is not clear whether it is limited in this way. The doctrine is only available as a shield, not a sword; there must have been reliance on the promise; it must be inequitable to allow the promisor to withdraw the promise; but it may well be possible to revive the original terms of the contract by giving reasonable Sample examination question 1 Question Simone owns five terraced houses which she is planning to rent to students. The houses all need complete electrical rewiring before they can be rented out. Simone engages Peter to do this work during August, at an overall cost of £5,000, payable on completion of the work. After rewiring two of the houses Peter finds that the work is more difficult than expected because of the age of the houses. On 20 August he tells Simone that he is using more materials than anticipated and that the work will take much longer than he originally thought. He asks for an extra £500 to cover the cost of additional materials. Simone agrees that she will add this to the £5,000. In addition, because she is anxious that the houses should be ready for occupation before the start of the university term, she says that she will pay an extra £1,000 if the work is completed by 15 September. Peter completes the work by 15 September, but Simone says that she is now in financial difficulties. She asks Peter to accept £5,000 in full settlement of her account. He reluctantly agrees, but has now discovered that Simone’s financial problems were less serious than she made out and wishes to recover the additional £1,500 he was promised. Advise Peter. Tutor guidance Using the guidance below, think about how you would answer the question. When you are ready, read the feedback. This question is concerned with the role of consideration in the modification of contracts, and the doctrine of promissory estoppel. Before looking at the feedback try to determine the response to the issues in this problem: Was Simone’s promise to pay the extra £500 a binding variation of the contract? Was Simone’s promise of an extra £1,000 if the work is completed by 15 September a binding variation of the contract? Is Peter’s promise to take the £5,000 in full settlement binding on him? The first two questions involve discussion of what amounts to consideration. Feedback If Peter has provided consideration for Simone’s promises, then he will be able to hold her to them. The answer to the third question will depend to some extent on the answer to the first two. If there has been no binding variation of the original contract, then Peter is not entitled to more than £5,000 in any case. If there has been a binding variation, then the question will arise as to whether he is precluded from recovering the extra money because of the doctrine of promissory estoppel. As to the promised £500, you will need to consider whether the fact that Peter is buying additional materials is good consideration for this promise. Simone may argue that it was implicit in the original contract that the cost of all materials needed would be included in the £5,000. The fact that Peter has made an underestimate is not her responsibility. Similarly, in relation to the promised extra £1,000, is Peter doing any more than he is contractually obliged to do, in that it seems likely that the original contract was on the basis that the work was to be done by the end of August? In answering both these questions you will need to deal with the principle in Stilk v Myrick and the effect on this of Williams v Roffey. This will involve identifying any ‘practical benefit’ that Simone may have gained from her promises. If such a benefit can be identified and there is no suggestion of improper pressure being applied by Peter, then the variations of the contract will be binding on Simone. The effect of the subsequent decisions in cases such as Re Selectmove, SCT v Trafigura and MWB Business Exchange Ltd v Rock Advertising Ltd (2016) upon Williams v Roffey could also be considered. In relation to the third issue, assuming that there has been a binding variation, you will need to decide whether Foakes v Beer applies (in which case Peter will be able to recover the £1,500), or whether Simone can argue that Peter is precluded from recovery by the doctrine of promissory estoppel. In relation to the latter issue, one of the matters which you will need to consider is whether promissory estoppel can apply in a situation of a debt of this kind, as opposed to money payable under continuing contracts such as those involved in High Trees House and Tool Metal Manufacturing v Tungsten Electric. You will also need to consider whether the fact that Simone may have not been fully truthful about her financial position may make it ‘inequitable’ for her to rely on promissory estoppel (see D & C Builders v Rees). The suggestion of Arden LJ in Collier v P & MJ Wright (Holdings) could also be considered. Sample examination question 2 Question Ahmed hired Sandra at the beginning of the summer to replace the gutters on the roof of his house. They agreed that Sandra would fit sets of new plastic gutters for £1,000. After Sandra fitted half the gutters, she realised that the work was a lot more demanding than originally anticipated. She let Ahmed know that she would need another £200 to finish the work before the weather turned wet in the Autumn. Ahmed, concerned that his house might suffer water damage if the work dragged into September, agreed to pay the extra amount. Sandra finished the work and sent an invoice for £1,200. Advise Ahmed on whether he is obligated to pay this invoice. Feedback Plan of answer: In problem questions it is important to identify the relevant legal issues, state the law accurately, analyse how this law applies to the facts presented and conclude by advising the party as instructed. The main issue relevant to Ahmed's problem is whether the modification to the contract is valid. Answering this question requires that we consider whether he agreed to the new terms under duress and whether there is new consideration to be found supporting the agreement to pay more money. The key relevant issues are therefore practical benefit consideration and duress. Ahmed is likely to successfully defend himself in any action for an agreed sum for more than £1,000. You will be able to advise him to pay the original amount and not the invoice as issued by Sandra. Analysis: A contract existed between Ahmed and Sandra for the work to be carried out for a specific amount (£1,000). Sandra's request for an additional payment to perform the same work (complete the installation) needs to be supported by new consideration to be enforceable (the performance of a duty already owed to the promisor is not good consideration, Stilk v Myrick EWHC KB J58). As Sandra is not offering something additional to what was originally agreed, we need to consider whether Ahmed is receiving some other 'practical' benefit (Williams v Roffey Bros & Nicholls (Contractors) Ltd 1 QB 1). An additional issue is whether Sandra made an illegitimate threat that forced Adam to enter into the new agreement (duress). If she were threatening a breach of contract (B & S Contractors and Design Ltd v Victor Green Publications Ltd ICR 419) and Ahmed felt that he had no alterative (Pao On v Lau Yiu Long AC 614) then a finding of duress would render any modified agreement voidable. Duress aside, while having the work completed on time is beneficial to Ahmed, this type of benefit seems far removed from the facts of Williams v Roffey (see also Rock Advertising Ltd v MWB Business Exchange Centres Ltd UKSC 24). Therefore, Sandra is unlikely to be able to convince the court that she is owed the increased amount. If it is accepted that there is no consideration to support the payment of the higher amount, the issue of duress (while relevant in theory) will not ultimately determine the outcome of the dispute. Sample examination question 3 Question (Peer feedback activity 2022) Chay owns a fleet of motorboats that he rents out to holidaymakers. In January he enters the following contracts. In each case the payment is due on 1 June. a) To rent a 50 metre luxury power cruiser to Des Pot, a politician, from 2 to 15 July for £20,000. b) To rent a 12 metre motorboat to Richard (call me ‘Dick’) Tator, a Professor of Law, from 7 to 14 July for £3,000. c) To rent a 5 metre converted ship’s lifeboat to Ernest Enhonest, a student from 24 June–8 July for £500. In March Des tells Chay that because of a fall in the value of his investments he cannot afford £20,000. Chay agrees to reduce the hire to £10,000. In fact the investments have risen greatly in value. Ernest also telephones Chay in March to say that he regrets booking such an extravagant holiday. Chay feels sorry for him when he tells Chay how much his textbooks cost and reduces the rental to £250. Ernest is delighted and so is able to buy all next year’s books in advance. On 1 June Des pays Chay £10,000, Richard pays him £3,000 and Ernest pays him £250. Chay’s accountant tells him that his business is making heavy losses. So on 1 July Chay tells Des and Ernest that the balance of the original rents must now be paid. Chay also tells Richard that his holiday will cost an extra £500. Richard protests but as he cannot find any alternative reluctantly agrees. Discuss the rights and remedies of the parties. Tutor guidance This was a challenging question but was also representative of the kind of questions that have been set as exam questions in the past. The skills required to produce a good answer are: Identifying the correct area of law to discuss It is key that you identify the problem as involving the modification, as opposed to the formation or termination, of contractual relations. This should become apparent from your first reading of the facts where the formation of three distinct contracts is noted. The rest of the factual scenario describes the parties’ attempts to modify these initial undertakings. Aspects of the doctrine of consideration Williams v Roffey etc. might be relevant, as might the doctrines of promissory estoppel and economic duress. Clear expression An examiner can only reward what they understand. Clear expression is particularly important in an area of law where difficult concepts e.g. so called ‘practical benefit’ as described in Williams v Roffey need to be explained and applied. Creating a clear structure for your answer Answers should always be presented in a clear and logical way. Different types of problem require different approaches. Here dealing with each of the three contracts separately is the obvious approach. A deep knowledge of the relevant legal principles It is necessary to have a good knowledge of the requirements of the doctrines of consideration as applied in the context of contractual modifications. This knowledge must comprise an understanding of the legal principles alongside the cases that illustrate their application. In the case pf promissory estoppel each of the requirements should be accurately described with a supporting case. This knowledge should be as up to date as possible incorporating say an understanding of the MWB v Rock (consideration) case in both the CA and the Supreme Court and Pakistan Airlines decision in the Supreme Court (economic duress). A good ability to apply your legal knowledge to the facts of the scenario Awareness of the legal principles alone is not sufficient as that knowledge must be applied to the facts of the scenario and conclusions drawn. The application of law to fact is one of the challenges involved in problem type questions. This can be challenging when deciding questions whether there was sufficient reliance to satisfy the doctrine of promissory estoppel. Common errors The error that caused students to ‘lose’ (strictly caused them to fail to gain credit) was not correctly identifying the area of law that needed to be discussed. However, the most common mistake was to give an over-general account of the relevant legal principles. In relation to promissory estoppel this might involve stating that reliance was a necessary requirement but not elaborating what kind of reliance is required as described by Lord Goff in the Postchaser. Many answers made insufficient reference to decided cases. There is no magic number of cases that an examiner is looking for but a lower second-class answer might typically refer to five to eight relevant cases. Associated with this many answers were simply too short and did not use up the word allowance. Finally, weak answers sometimes failed to follow a logical structure though this was the least frequent of the errors I have described. Good answers Good answers typically started with a clear and focused introduction that identified the problem as raining issues of contract modification. In stronger answers this was supplemented by an acknowledgment that two of the modifications in the problem were so called ‘reducing;’ ones, i.e. where a party sought to reduce the obligations assumed under the original contract and the other was an ‘increasing modification, i.e. one where a party sought to enlarge the obligations assumed under the initial contract. The best answers would at this initial point identify the legal doctrines that must be considered, i.e. consideration in the context of contractual modifications, promissory estoppel and economic duress. Strong answers demonstrated a detailed knowledge of the requirements of these doctrines especially the more challenging ones. The requirement of reliance described by reference to Lord Goff’s judgment in the Postchaser featured in many particularly good answers. Such answers also showed a greater awareness of the effects of establishing a promissory estoppel (i.e. limited enforcement of the modifying promise) or of economic duress (i.e. it renders the contract voidable that is liable to be set aside).

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